Judge hits at backdating tax law changes

A Federal Court judge has taken a veiled swipe at the federal government’s trend of introducing retrospective tax laws, which shadow treasurer Joe Hockey slammed as part of a “tax grab".

Judge Michelle Gordon described retrospective law as “moving the goalposts after the kick was taken".

Speaking at the University of Melbourne law school on Wednesday, she warned that complex and uncertain tax laws deterred foreign investment.

“If the Commonwealth’s position is that taxpayers should order their affairs subject to the Commonwealth’s overriding right to subsequently enact retrospective legislation at a time and of a kind of its choosing", or if that was the practical outcome, she said, “the consequences (legal, economic and otherwise) . . . are simply too important to the future of this country".

Transfer pricing changes dating to 2004 were passed by Parliament last week and laws adjusting consolidation rules from 2002 were passed in June.

“We will continue to oppose retrospective tax legislation which disadvantages taxpayers," Mr Hockey said in Adelaide on Wednesday.

He hinted that a Coalition government could split the law-making, compliance and enforcement functions of the ATO.

Justice Gordon said the “new" category of retrospective laws, which start from the date of a media release “without any indication of its terms or how it will operate", possibly exacerbated the consequences.

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By way of example she referred to a statement in March by then assistant treasurer
Mark Arbib
, announcing proposed changes to the tax avoidance rules to ensure they remained “effective". Details are still to come on the changes. Justice Gordon questioned whether their unequal treatment of taxpayers robbed retrospective laws of their character as taxation, and raised the possibility of more limitations.

Taxpayers could consider seeking compensation for retrospective tax by arguing that a pre-existing right had been terminated or affected – and the Commonwealth now had an interest.

She said it was not surprising that new or changed policies were scrutinised for constitutionality, without mentioning the recent Fortescue Metals Group mining tax challenge.

Justice Gordon refrained from commenting on laws passed or foreshadowed, as that would be “inappropriate", she said.